Thomas Lumley writes:
We’ve got a cap (more or less). One of the non-intuitive aspects of having a cap rather than a fixed price is that parallel efforts to reduce carbon emission don’t work the way you’d expect them to. If I replace my gas stove with an electric one, my kitchen will emit less carbon (modulo the impacts of making the new equipment). If everyone did it, everyone’s kitchen would emit less carbon (again, ignoring the impacts of making the new equipment). What would happen to NZ’s total carbon emissions? Nothing. We have a cap. Less of the cap would go on carbon coupons for burning natural gas; more of it would be available for cars or trucks or coal-fired power stations. The impact of our kitchen-renovation decisions would be cheaper emissions rights for other polluters, not lower emissions.
In principle, I could keep buying emissions rights for the natural gas I wasn’t using. That would turn my lower emissions into reductions for NZ as a whole. Or, the government could monitor the sales of induction cooktops and withdraw emissions rights to compensate (or, more realistically, track kitchen conversions through some sort of subsidy). But if nothing happens to the total ETS carbon budget, nothing will happen to total emissions. A big enough change in demand could change emissions — if cars were suddenly banned, the government might not be able to sell all its ETS coupons — but a modest change won’t.
When the government says that new subsidies for low-emissions cars will reduce carbon emissions by some large number, there’s a gap in the explanation. Having more low-emissions cars will lower carbon emissions by cars, but unless the government withdraws the corresponding emissions rights from the carbon budget, it won’t reduce carbon emissions in total. The reduction will go to lowering carbon costs for other polluters.
This is what the NZ Initiative and other business groups have been saying. People might not trust it coming from then, but they may when it comes from one of the leading statistics academics in NZ.
The bottom line is the feebate will not reduce carbon emissions in total. It will merely lower carbon costs for other “polluters”.